Posts Tagged ‘European Commission’

Maps showing that the Welsh Assembly Government’s (WAG) publicly-funded Superfast Cymru project supplied by BT will overbuild an existing publicly-funded network have led to questions about the legality of the £425m next generation broadband project.

Using post code data obtained under the Freedom of Information Act with the help of the Information Commissioner’s Office, broadband consultant Richard Brown has identified post codes included in the Superfast Cymru roll-out that are already covered by the £30m Fibrespeed network. He has asked the European Commission to investigate whether there has been a breach of the regulations.

Where BT plans to roll out Superfast Cymru. Source: WAG

BrokenTelephone reported in November last year that the WAG was seeking ways to overbuild Fibrespeed. At the time business, science and transport minister Edwina Hart said a change in the guidelines governing state aid for broadband might allow the overbuild, and promised to report back to WAG members.

Fibrespeed is owned by the WAG but supplied and operated under a 15 year contract by independent dark fibre network operator Geo (sold last week to US-based Zayo). It was to service 14 business parks in north Wales with an optical fibre trunk network at prices equivalent to London and the UK South-East, according to assembly member Lesley Griffiths, speaking in 2008. Local ISPs tapped spare capacity in the network to provide local residents with wireless connections starting from 2Mbps, providing a service BT could not match.

Brown asked Hart a year ago if Superfast Cymru would overbuild Fibrespeed. “At that time I received a statement from the business minister that she was satisfied that there was no overbuild, and the EU Commission received a similar reassurance that there was no overbuild and so chose not to pursue the matter any further,” he wrote to the commission.

On receiving the post code data for Superfast Cymru coverage areas, he tested them against those covered by Fibrespeed (see table).

“The original statement issued to me by the business minister, and subsequently affirmed by the EU Commission, was that the Fibrespeed project was specifically targeted at business parks in the north of Wales and, whilst resellers of the Fibrespeed capacity may have extended this network using alternative connection methods (wireless appears to be prevalent), no business park was to be covered by Superfast Cymru, and so no overbuild of the original public funded project would take place,” he said.
“LL17 OLJ is St Asaph Business Park. It is where Fibrespeed have their principal office of operations.”

Brown said, “It is clear that a deliberate attempt appears to have been made to misrepresent both the Fibrespeed and Superfast Cymru projects to the EU Commission for the purposes of securing additional (duplicated in part) public funding.
“Whilst the declared outcome sought (increased access of citizens to superfast broadband speeds) is of course laudable, the Superfast Cymru project itself is under scrutiny as to whether it can indeed deliver on this.”

*released postcodes refer to a document which is the 54k (approx) postcodes that the Information Commissioner compelled the Welsh Government department to release to Brown that detail the target intervention areas of the Superfast Cymru project.

Vodafone has called on European regulators to ensure that non-incumbent-owned mobile network operators have access to fibre backhaul on the same terms and conditions as their in-house operators or face a declining competitive ecosystem.

The call stems from a looming shortfall in microwave capacity and prohibitive pricing of incumbents’ fibre, poles and ducts to cope with the fast-rising volume of data traffic.

Research by Analysys Mason commissioned by Vodafone found that incumbent operators favour their in-house mobile operators when it comes to accessto a fibre-based backhaul. “These inputs are not always made available to competing operators as a wholesale or retail product with the desired interface, quality, speed or price.

“The fact that the required inputs are not available, or are extremely expensive, may dampen competition in the mobile market in some countries because the fixed incumbent operator is usually (with the exception of the UK) also a major mobile operator and can gain benefits as a result of this vertical integration – specifically the much greater capillarity of its fibre network,” it said.

The leased line market, in which the mobile operators are a large segment, contributed £2bn/y to BT’s £18bn turnover, the researcher found.

Ben Wreschner, who leads Vodafone’s regulatory economics section, said all Vodafone wants is access on equal terms and conditions as the in-house mobile operator. He said Vodafone accepted that there couldn’t be a single price across Europe, if only because labour prices differ. Instead he called for a harmonised approach to access to fibre for mobile backhaul.

He called on the European Commission to provide guidance to BEREC, the European telecoms arch-regulator, for directives that national regulatory agencies (NRAs) can implement to give effect to this.

The study showed that independent mobile operators use microwave extensively to backhaul their traffic. But they are running out of spectrum. The shift to small cells for LTE traffic is quickly eating up the available capacity. Vodafone’s preliminary report for 2014 revealed that 4G smartphone users use about twice as much data as 3G users, mainly to stream video. Smartphone penetration in Vodafone’s European markets is around 45%. Both factors are pushing mobile operators toward fibre, which has the required capacity to ensure an acceptable user experience.

The MNOs’ options are to switch to so-called E-band microwave in the 60-90MHz band, which due to rapid attenuation of signals, will require many more sites to be rented; to rent access to commercial fibre where available; to rent regulated fibre from the incumbent operators, or to build their own fibre networks.

Vodafone has bought some of its own fibre backhaul (eg Cable& Wireless), but it has cost billions and doesn’t always cover the cities where demand is greatest. Building new fibre would duplicate existing fibre networks, take a long time, and cost a lot more on top of their expensive mobile licences.

Last week Ofcom said it would give BT a further period of non-regulation of fibre prices for high speed (above 1Gbps), where it holds an effective monopoly outside London. It also promised to rule soon on a TalkTalk complaint that BT operates an illegal margin squeeze on fibre prices.

Wreschner said he was watching the margin squeeze decision with interest, but stressed that that is a different market (retail) to Vodafone’s concern (wholesale) about backhaul. “We think the wholesale market needs specific regulation,” he said.

This is why, although they face similar problems as altnets trying to provide fibre to rural homes and businesses, the mobile industry did not speak out when the BDUK process was being set up, he said.

It’s becoming increasingly clear that BT is prioritising rural areas where it faces competition for its initial taxpayer-funded roll-out of next generation broadband.

The latest example comes from West Sussex, where BT has already upgraded the coastal belt in its commercial roll-out, and is now moving inland.

The official West Sussex County Council interactive map (which is not up to date in terms of its colour-coding; it still says the coast is “under evaluation”) does not reflect any choice of suppliers of high speed broadband.

However, BrokenTelephone has made a more up to date map which shows roughly how BT’s taxpayer-funded coverage maps onto the coverage provided by wireless internet service provider Kijoma (outlined in black).

Interestingly, the WSCC says that two of the exchange areas shown as pink are “partly in the commercial roll-out”.

“These are Billingshurst and Bosham. The rest are outside of the commercial roll-out and therefore in the area eligible for funding by the project.”

When the BDUK procurement framework was first mentioned, wireless was excluded as not being capable of meeting EU targets of 30Mbps for all, and 50% of the population on 100Mbps service. The European Commission later relaxed its stance on wireless, but BDUK and local councils appear to ignore the change in contracting for next generation broadband networks.

We have asked WSCC for clarification as to precisely which areas in Billinghurst and Bosham (bottom left of map, just south of Kijoma coverage) are in the commercial roll-out, and what the time-frame is for the roll-out to the non-commercial parts are. We’ll update this story if we get a reply.

This is not the first sign that BT is being allowed to use public money to overbuild privately-run networks. The most egregious so far is BT’s roll-out of a fibre through the

Lune Valley, Lancashire – site of the BT/B4RN broadband battle. (Click to open.)

Lancashire village of Dolphinholme, where residents have spent time, money and effort digging towards the B4RN network to ensure that their village doesn’t miss out.

While BT’s Dolphinholme roll-out looks good in terms of “homes passed”, the actual availability of a fibre connection to those homes not on the road appears slight. The more likely reason for the fibre link is that the road through Dolphinholme leads to a radio mast, and the fibre is there to backhaul mobile radio traffic, not to carry residential broadband traffic. But its presence is a threat to B4RN, which, try as it might, is unlikely to persuade mobile network operators to use its fibre, at least in the short term.

Tunstall, another Lancashire village in the B4RN coverage area in BT’s sights, is on the road to Kirkby Lonsdale and there is already fibre in that road. BT is also targetting Whittington, which is the hamlet after Arkholme and Docker on the way up to Kirkby on the opposite side of the Lune valley to Tunstall.

Two weeks ago Gigaclear scrapped plans to roll out a 1Gbps-capable FTTP network in the Dun Valley, Wiltshire, after the Wiltshire County Council said it would apply BDUK money to BT’s “up to 80Mbps” FTTC roll-out in the area. This followed months of discussions between residents, Gigaclear and the council as to their roll-out plans for the valley.

It took a single question to unstitch a carefully woven fabric that pictures the UK as a global leader in high speed broadband.

Three reports have came out in the past couple of weeks that appear to justify the government’s broadband policy. One, on the domestic demand for broadband was from the Communications Chambers for the Broadband Stakeholders’ Group. Another, from SQW, reported on the economic impact of broadband to the department of culture, media and sport (DCMS), which is responsible for the UK’s telecommunications policy and implementation. BT earlier commissioned market researcher Analysys Mason to write a benchmark report comparing the UK’s roll-out to competitor nations.

The reports are well worth reading to understand the assumptions and methodologies that led to the conclusions drawn and pictures painted. Each in its own way puts the rosiest possible gloss on the numbers. SQW found a 20 to 1 ROI in terms of gross value added by 2024. BSG said the average home will need only 19Mbps by 2023, and the top 1% of homes will need only 39Mbps tops.

Analysys Mason partner Matt Yardley told a Westminster eForum audience in London yesterday that the UK coverage of high speed broadband would slightly exceed Japan’s by 2018 (see graph).

It all looked so responsible as to the use of taxpayers’ money. Only the cynical might think that the coruscating National Audit Office report on the value for money that taxpayers can expect from the £1.2bn (or is it £1.4bn?) they are giving BT has anything to do with the sudden improvement in our insights into broadband a la UK.

Then a question from Kcom’s financial director Sean Royce dimmed the glow. Referring to the graph (above) that showed the negligible perceived differences between the UK and Japanese coverage by 2018, he said, “I’m just keen to understand what your observations might be if superfast broadband was 100Mbps rather than (EU-defined 30Mbps).”

To his credit, Yardley didn’t duck it. “The EU policy objective is on take-up,” he said. “This (chart) is based on a 30Mbps definition of superfast. It would be interesting to know if these (data for other countries) were 100Mbps to the users themselves, because we know that there’s a combination of fibre to the home and fibre to the basement using VDSL (to the flat/office), but I don’t have that breakdown. But it’s pretty clear that if we took a definition of 100Mbps, then a gap would still exist.”

According to an Arthur D Little presentation to the FTTH Council Europe, in December 2012, fibre to the home or basement was available to 90% of Japanese homes, and 42.5% were connected via fibre. According to OECD figures for September that year, the average advertised broadband speed in Japan was 95Mbps.

The contract for ‘superfast broadband’ that the Welsh Assembly Government (WAG) has signed with BT will deliver less than politicians have promised in public statements, and appears to deal with BT and Openreach as a single entity in violation of a BT regulatory undertaking to “functionally separate” the two.

It also raises questions about the legitimacy of the money given to BT because of how it will be used.

Brown obtained a heavily redacted copy of the ‘Superfast-Cymru‘ contract after an eight month battle using the Freedom of Information Act (FOIA). He says the financial, coverage and timing details of the contract are missing, but what remans is still revealing.

He notes that while the contract is between BT Plc and the WAG, it is signed on behalf of BT by outgoing Openreach CEO Liv Garfield.

“There is a legal governance issue (imposed in theory by Ofcom) that each part of the BT group should have ‘Chinese walls’ between them to prevent unfair exposure to competitive information leaking from one wholly owned subsidiary to another,” Brown says.

“There is a fundamental concern that if Openreach is supposed to be a functionally separate organisation, and the CEO of Openreach is the signatory to the contract then information must (by definition) be being passed between Plc and Openreach, in a manner that has been expressly forbidden by the legal undertakings given to Ofcom.”

Brown says WAG ministers are guilty of overpromising in public what the contract will deliver in terms of speed.Ofcom has accepted the European Commission’s definition of “superfast” to mean download speeds of at least 30Mbps.

“The Welsh Government have not contracted BT to enable the delivery of superfast broadband to premises in Wales, simply that the core infrastructure (exchanges and cabinets) will enable a measurement of premises passed to reach a total of 95% for up to 24Mbps speeds,” he says.

This view is confirmed in Clause 21.4 of the contract: “The Grantee acknowledges that the Welsh Ministers will not pay any contribution or subsidy to the Grantee in respect of the Last Drop Connection” ie, the link between the street cabinet and the premises. This rules out WAG support for any fibre to the premises.

The contract commits BT to meet three targets by 30 June 2016 or at the latest by the ‘Drop Dead Date’, which has been redacted:

90% coverage of all premises in the ‘intervention area’ at >30Mbps PPiR and a minimum of 2Mbps CIR (committed information rate)

95% at >24Mbps with a minimum of 0.5Mbps CIR

40% coverage with >100Mbps with a minimum of 10Mbps CIR.

Brown says Target 2 is dismaying. “At no stage have the ministers ever claimed anything lower than 96% coverage for superfast broadband under this contract. It is clear that there is a degree of wishful thinking by the ministers that BT will choose to deliver more than they are contracted to do.”

Brown estimates 30,000 homes and businesses may be disappointed if BT fails to meet the 96% coverage target claimed by ministers. No-one knows who they might be because the post codes of the coverage area are secret.

Brown further believes there is a difference between what the WAG told the European Commission it wanted state aid permission for, and what it is buying from BT. The European Commission’s 2005 decision on state aid in the case of UK’s Rural Broadband Access Programme made it clear that only capital costs are eligible for state aid.

It said “Eligible capital costs such as investments in communications networks and equipment necessary to provide the requested broadband services have to be directly attributable to the project and incurred during the period of the Broadband Service Agreement. No operating costs will be financed.”

According to Brown, the works that are required under that contract appear to enforce requirements on BT that are explicitly not being paid for.

The Superfast Cymru contract requires BT to supply “Operational Works” that consist of maintenance and wholesale services and the sales and support of wholesale services.

“The inclusion of the clauses compelling BT to deliver such ‘value added’ services, as opposed to them being part of the funded delivery, lends weight to the likelihood that the ministers have assisted BT in being as tax efficient as possible,” Brown says.

Brown believes taxpayers will have to pay BT’s costs to sell them broadband. Clause 16.6 states “…The Welsh Ministers shall only pay Financial Contributions in respect of those marketing activities that the Welsh Ministers have approved in accordance with the Marketing Plan.”

This clause is wholly inappropriate, says Brown. He says Page 4 Section B makes it clear that the grant is a capital grant to BT on the grounds that infrastructure is being purchased.

“Such a commitment by the Welsh Government gives BT a disproportionate market advantage over other wholesale providers, and as such would be considered a significant influence into the market dynamics.”

Brown questions how much money BT will actually contribute to the Superfast Cymru project. The contract caps The WAG’s contribution at £195m. He notes BT has indicated its total investment in Welsh broadband, including its commercial rollout, is £220m. At Clause 21.5 the ministers “acknowledge and accept that the Grantee has made a contribution of a sum at least equal to the Maximum Grant.” That suggests BT’s extra contribution to Superfast Cymru is just £25m.

On the question of VAT, at Clause 21.11 WAG and BT agree between themselves the the contract does not cover payment in consideration of services to the ministers and that the deal is therefore exempt from VAT.

“BT are compelled to deliver wholesale services as a result of this contract (even to the extent that the Ministers have chosen to engage in price manipulation in the market space). Wholesale service provision as a requirement of the contract, does not allow for the contract to be considered as a ‘capital investment’ only contract,” says Brown.

Summing up Brown says the 96% coverage ministers claim will be delivered “does not represent a percentage of homes and businesses that will receive superfast broadband/fibre broadband. The measurement is solely on premises passed. Premises passed is a measurement of presumed capability that considers only the core infrastructure.

“This utterly ignores the capability of the line between the exchange/cabinet and the premise to deliver the faster services.”

Brown referred to the Aus$24bn Australian National Broadband Network, which also used premises passed, and which the head of BT’s NGA rollout Bill Murphy has branded a failure on Twitter.

Brown says “In August the industry press was awash with headlines … which suggest that there are approx. one third of all the (Australian) premises passed that are unable to gain access to the increased service speeds.

“Premises passed is simply not a measure of the amount of the population that will be able to gain access to improved services. It is simply a measure of the capability of the core network – something that will not change Wales’ future, but will certainly enhance BT’s.”

The Welsh Assembly Goverment (WAG) is looking for ways to allow its state-aided BT-supplied £425m Superfast Cymru project overbuild the 14 North Wales business parks served by the FibreSpeed wholesale network. If a way is found, taxpayers will be paying twice to provide high speed broadband to the area.

FibreSpeed’s physical infrastructure is owned by the WAG, but supplied and operated under a 15 year contract by FibreSpeed, a Geo Networks subsidiary. The business parks and industrial estates on the FibreSpeed network were excluded from the Superfast Cymru plan because they overlapped.

In a letter to Assembly Members, economy, science and transport minister Edwina Hart said a change in the guidelines governing state aid for broadband may allow the overbuild.

“I have commissioned a technical and legal review to consider whether it is possible to provide support for Superfast Cymru in locations already served by FibreSpeed. I hope to provide an update on this shortly,” she wrote on 12 November.

The European Commission gave permission in February 2006 for the WAG to use state aid to commission FibreSpeed. At the time BT’s prices were 2.7 to 7.2 times more expensive than London for the same service (see Note below). This was more than local businesses could afford, the WAG said.

“The EU regulations on state aid for broadband which applied at that time were interpreted as meaning that Superfast Cymru could not be supported in addition to FibreSpeed in those areas directly covered by the State Aid notified FibreSpeed footprint,” Hart wrote.

The WAG earlier refused to allow FibreSpeed to increase its footprint, and refused to answers questions about why it allowed part of it to lay unlit. A Freedom of Information request revealed 126 businesses were using FibreSpeed in June 2011 .

She noted that a number of ISPs are using FibreSpeed links to backhaul wireless broadband connections to homes and businesses across north Wales.

“Many of these ISPs’ customers have benefited from the Broadband Support Scheme to cover the cost of their connection. The beneficiaries of the Broadband Support Scheme aid are the end users, not FibreSpeed nor the retail ISP, so there is not a State Aid issue for these telecoms organisations as a result of the scheme.”

BDUK has pronounced itself happy with the results of its two month pilot of a voucher scheme to increase small business connectivity in cities, even though only 35% of requests for funding led to a quotation.

The original £150m SuperConnected Cities project aimed to set up fibre to the premises (FTTP) networks in 22 cities. Following legal objections from BT and Virgin Media, this was replaced with the voucher scheme. The scheme allows SMEs to apply for grants of up to £3,000 to fund a connection to a broadband service that gives “step change” in the speed received.

The £2.25m pilot ran, largely unpublicised, from the start of August to the end of September in Belfast, Cardiff, Edinburgh, Manchester and Salford.

“The supply chain supporting the use of vouchers is either competitive or regulated so this will prevent distortions to competition,” BDUK said.

BDUK reported 59 suppliers registered, though some were inactive prior to the scheme. Sixteen didn’t meet the registration deadline, and a further 19 said they were interested in Phase 2 of the project.

There were 690 voucher requests, of which 443 conditional offers were made (12 rejected), leading to 240 quotations from 28 suppliers.

BDUK declined to give a breakdown of the location of the requests, or many contracts were signed, or the amounts committed.

However, Metronet, a fibre-wireless ISP in the north-west, claimed 13 orders from the voucher scheme. This earned the firm a visit from communications minister Ed Vaizey during the recent Conservative Party conference to learn the secret of their success.

MD James McCall is on record saying businesses depend more on having a reliable service than raw speed.

BDUK said, “Some cities and suppliers have noted that some SMEs fed back that they value the quality of service elements of business grade services and that a service under 30Mbps can represent a significant upgrade in capability. We will consider whether there is an opportunity to be flexible around minimum speed required for business grade services.”

It added, “From our perspective and that of the (European) Commission the scheme the market test have (sic) been successful.”

BDUK is holding two industry days to provide feedback and discuss phase 2 on 18 and 21 October in London. It will present its findings to the European Commission Case Team on 31 October and to the Commission on 6 November. Ministers will decide whether to go to phase 2 shortly after.

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